Sumitomo Wrestling

Election night, 1995. Phoenix Mayor Skip Rimsza is beaming. Though it is the lowest-turnout municipal election anyone could remember, voters have given Rimsza a sizable victory over three challengers. In his victory speech, flanked by supporters, His Honor chalks it up to the confidence and sense of good stewardship he inspired in voters.

It was about business sense, he says, pointing to his track record of bringing new businesses to the city.

That record includes the Japanese manufacturing giant Sumitomo, which announced just days earlier that it would locate a 500,000-square-foot silicon-wafer factory in northeast Phoenix. The plant would bring 400 jobs to the area--a development north of the Central Arizona Project canal near Tatum Boulevard--and enhance the high-tech luster local politicians have tried to put on that part of the Valley.

News media and businesspeople alike had praised the effort to bring Sumitomo here, calling it a model of cooperation between industry and state and local governments. Rimsza isn't about to pass up the opportunity to take his share of credit for the coup.

"Not very often do you have the opportunity to even consider getting a company of this magnitude," he says proudly. He likens Sumitomo's arrival to the 1971 move by the Greyhound Corporation (now the Dial Corporation) to Phoenix. The mayor is obviously pleased with himself and his deal.

Not everyone else is. Some people living near the plant's planned site worry about traffic, pollution and the huge amount of water the facility is projected to use.

But the most serious questions about the Sumitomo deal involve the enormous incentive package state and local governments have offered to the company.

State and local officials have offered Sumitomo--a Japanese superconglomerate that owns the world's largest bank and boasts nearly $150 billion in annual revenue--inducements worth billions of dollars to build a computer-chip plant that may employ as few as 400 people. The inducements include:

* immediate off-site infrastructure improvements valued at $8 million;
* a state job-training grant of $450,000;
* a variety of income-tax breaks that the state government has refused to detail; and

* a promise to make Sumitomo's site a "free-trade subzone" that will allow the plant to operate free of import-export duties and some taxes.

It is the free-trade-subzone deal that constitutes the most stunning of the governmental subsidies offered to Sumitomo. The free-trade designation will make the company exempt from 80 percent of the property taxes it would otherwise have to pay.

At current rates, that tax break would save the company approximately $11 million a year in local property taxes. Those tax benefits would continue for the life of a 99-year lease of state land for the wafer plant. The face value of this break alone is more than $1 billion.

The future value of this tax break--that is, the value of these tax savings (or, from the government's point of view, lost tax revenue), if they were invested at a moderate interest rate--tops $80 billion.

Perhaps the most disturbing feature of the incentive package offered to Sumitomo is its covert nature. The state and city conducted most of the negotiations to bring the company here in secret, without the participation or knowledge of the public. Amid a barrage of boosterism, there was no serious press coverage of the potentially negative aspects of the wooing of Sumitomo.

And no one in a position of authority publicized this bit of elementary mathematics:

The average job at the new chip plant will pay about $23,000 per year. If the factory reaches its possible capacity of 700 jobs--and there's no guarantee it will--during each year of the next century, the government will give Sumitomo a property-tax subsidy of $15,000 for each of those jobs.

In early September, just weeks before Sumitomo decided to build in Phoenix, the city and the state had all but given up on snagging the plant. It looked as if Newberg, Oregon, a suburb of Portland, had won the race going away. Sumitomo officials were said to prefer the area's climate, lifestyle and better-educated worker base. Only a last-minute scramble of antiplant activism, and a show of backbone by Oregon officials, had killed the deal. In essence, Phoenix won by default.

It was a costly win, all the same.
"Arizona won this project because we rolled up our sleeves," Governor Fife Symington crowed. "We worked as a team to show Sumitomo that we wanted them here in Arizona. We were serious about that."

They sure were. Just look at the A-list of Valley movers and shakers brought in to help the deal along: Doug Yearley, chairman of Phelps Dodge Corporation, who used his connections from joint ventures between the Phoenix-based mining company and other Sumitomo divisions; Don Budinger, president of Rodel Inc., who played up the benefits of locating near his company, which manufactures chemicals and polishing tools for silicon wafers; Mark DeMichele, chief executive officer of Arizona Public Service Company, who helped put together a utility deal; and Roy Herberger, president of the American Graduate School of International Management, who put his expertise in Japanese business practices to work on the state's behalf.